The Most Important Minimum Wage Paper in Decades Is Good News for Everyone

A new study looks at 137 minimum-wage increases and finds that they had no negative effect on employment.

Over the weekend in Philadelphia, the American Economics Association met for its annual conference. It’s an opportunity for economists to get together and present what they’ve been working on over the past year. Their discussion over new data then adds to and informs the next year’s worth of work. (Why would virtually all the economists in the country decide to visit Philadelphia in the first weekend of one of the coldest Januaries on record? Beats me—but then, trolls always tell me I don’t understand Econ 101, so maybe this is over my head.)

As you might expect, the $15 minimum wage was a major topic of conversation at the conference. Cities and states around the country are raising their wages, and Democrats everywhere in 2018 and 2020 are preparing to run on platforms promising a $15 minimum wage. It stands to reason that economists are going to focus on the minimum wage as a field of study.

I wanted to highlight three reports that have made national headlines since the conference.

First, Amanda Y. Agan from Rutgers University and Michael D. Makowsky of Clemson University issued a brand-new report studying the impact of minimum-wage increases on recidivism among Americans who have been in prison. They found that “the average minimum wage increase of 8% reduces the probability that men and women return to prison within 1 year by 2%.” This makes sense—if you’re able to earn a living wage, you’re less likely to break the law to make a living—but it’s significant to finally have research proving that the minimum wage can be a crime deterrent among citizens who have made mistakes and then paid their dues to society.

The researchers examined data culled from 137 minimum-wage increases stretching between 1979 to 2016. They find:

For these 137 minimum wage increases, which have a mean real increaseof 10.2%, we find a very clear indication that there was a reduction in the number of workers reporting a wage below the new minimum.

Totally makes sense, right? When you increase the minimum wage, the number of workers making less than minimum wage decreases. But do those jobs disappear, then? The report goes on (emphasis mine):

However, we also find a clear increase in the number of jobs paying at or above the new minimum, leaving total employment essentially unchanged. Our baseline specification shows that in the five years following the minimum wage increase, average wages of affected workers rose by 7.0%, while employment of affected workers rose by a statistically insignificant 3.0%.

It’s maybe difficult to parse from the academic language, but this is a big deal: that huge swath of data indicates that when the minimum wage goes up, wages increase and employment stays roughly the same. In other words, raising the minimum wage has no impact on employment for the five years following a wage increase.

Okay, I can hear the cynics saying off to the side, but what happens when you raise the minimum wage by a lot? The difference between the $7.25 national minimum wage and the $15 minimum wage, after all, is enormous. Surely a big increase like that would hurt employment?

Fear not! This report also separates and examines the impact of large wage increases:

When we restrict our sample to those with minimum wages with a substantial bite, we find additional evidence that the total employment of affected workers remains the same. Focusing on 46 events with the largest bite, we estimate that average wages of the affected earners increase significantly by 10.8%. We also find employment is little changed with a statistically insignificant increase of 0.2%.

No difference. Wages go up, and employment stays the same for five years afterward.
In this graph from the report, you can see how those raises play out: the huge dip in employment among people who make less than the current minimum wage is then distributed among those workers who now make more than the minimum wage.

This report is the latest in a long series of compelling reports indicating that raising the minimum wage actually benefits all Americans. When we include more Americans as consumers, those consumers then spend that money, which allows employers to hire more workers. In the long run, it’s good for everyone.

So just a couple weeks into 2018, this year has been pretty good for minimum wage studies. We’ve learned that a higher minimum wage encourages people leaving prison to stay out of prison. We’ve learned that earnings increased among restaurants in cities that started down the road to $15, with no detrimental effects to restaurant employment.

And in what is considered one of the most significant minimum-wage studies in American history, we find that a huge body of data proves that raising the minimum wage increases income without harming employment numbers.

The body of evidence is strong, and it’s growing: those who claim that raising the wage will always result in economic despair are flat-out wrong. And those who argue that raising the wage will hurt employment numbers are swiftly losing ground to studies culled from decades of solid data.

Maybe for 2018 we need to create a significant shift in the minimum wage conversation. It’s time to shut down the doomsayers completely—no, an enormous and growing body of evidence proves the sky will not fall—and to embrace a more realistic understanding of the minimum wage.

When we make sure that everyone earns a living wage, we’re not stealing from employers to subsidize workers; we’re investing in everyone.